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We Need a Democratic Revolution of Investment Potential

The death of one of the richest men in the UK, Gerald Grosvenor the 6th Duke of Westminster, earlier this year (August 2016) threw into relief the gross inequality of wealth in the UK. The Grosvenor estate was established by Hugh Ardley in the 17th Century, who was no shrinking violet as can be seen from this ‘way to riches’ biography of his life. The outrageous aspect of the Grosvenor estate is that via a system of trusts the Estate pays almost no Inheritance Tax! It is a strong temptation to call for the state to simply seize the Grosvenor Estate and bring it into public ownership. While I am all in favour of abolishing hereditary titles, such a call actually reveals a much more widespread and deepseated problem with in our current neo-libertarian approach to economics, that of exactly who controls the means of investment. Supposing we did in fact ‘nationalize’ the Grosvenor Estate. That means the Government will possess over £9bn worth of property which will be practically worthless unless the assets are sold. So an equally important question is not only who controls the assets but who controls the investment potential generated by those assets. Clearly by avoiding taxes the Grosvenors themselves are actually enjoying the full investment potential of the estate.

Investigating the ownership of investment potential as well as the assets reveals the true extent of the gross unbalanced nature of our society. An example from a different domain is the contract for controversial nuclear power station Hinckley Point C. The construction of an as yet unproven model of power station is being funded by the French EDF power company but only on the basis that the UK electricity consumer (yes us again) buys the electricity at much above market rates for decades to come. But what if the unproven reactor design requires extensive and expensive modification? Will the government really hold EDF to its contract and possibly bankrupt the company? The substantial potential returns on the installation are privatised while it appears that the risk is, once again, borne by the public.

But there are other models of investment, some of which operate in the United States which is often held up as a paragon of private owner capitalism. A closer view reveals a more complex interaction of public and private ownership, a particularly interesting example being the New York Power Authority. The NYPA is a publicly owned power generating company in New York State which claims to be one of the most efficient generators in the US, tasked with developing renewable sources and providing cheap power to not-for-profit organisations and small businesses. But we can go further than this with the massive potential in Pension Funds and other schemes. Open up these funds to the control of their investors and a more democratic system of investment becomes possible. The question of the democratization of investment potential is every bit as important as who actually controls wealth with which, of course, it is inextricably linked.